ANN ARBOR—After enjoying one of its strongest years in recent times, the Wayne County economy will end up faring even better this year before scaling back somewhat over the next two years, say University of Michigan economists.

“Wayne County had its best performance of the decade in 1999,” says George A. Fulton, senior research scientist at the U-M Institute of Labor and Industrial Relations (ILIR). “After two years of no growth, employment turned around and posted gains in excess of 1 percent. The unemployment rate came in at 4.2 percent, the lowest it’s been in at least 30 years, and local consumer inflation was tame at 2.6 percent. And it appears that the county economy’s performance will surpass in 2000 the standards it set in 1999.”

Fulton and colleague Donald R. Grimes, ILIR senior research associate, presented their second annual forecast of the Wayne County economy today to business and community leaders at Comerica Park in downtown Detroit. “The forecast shows just how much influence national and global issues have on our local economy here in Wayne County,” says Edward H. McNamara, Wayne County Executive. “This forecast is a very important planning tool for the county, its communities and our businesses.”

According to Fulton and Grimes, Wayne County will gain 9,000 jobs this year (the largest increase since 1994 and a gain of 1.3 percent over last year) as the unemployment rate dips even further to 3.7 percent.

“Much of the impetus for these favorable conditions comes from an automotive industry that for the past year-and-a-half has been smashing sales records for light vehicles,” Grimes says. “It appears that these astounding sales figures are beginning to decline as interest-sensitive sectors such as autos feel the effects of the interest rate hikes engineered by the Federal Reserve in order to slow down a booming national economy.”

Due to the projected slowing of vehicle sales, combined with constraints imposed on local growth by persistent labor shortage problems, modest job declines of 1 percent are expected in each of the next two years, the forecast shows. In addition, the county unemployment rate is predicted to drift upward to a still-very-low 4.1 percent next year and 4.3 percent in 2002.

Moreover, local inflation is forecast to rise from 2.6 percent last year to 3.6 percent this year—reflecting, in part, the recent jump in oil prices—and will remain steady in the 3.5 percent-3.7 percent range through 2002.

Fulton and Grimes say that the employment declines in Wayne County in the next two years (a loss of about 7,000 jobs each year) will be concentrated in the manufacturing sector. While job growth in manufacturing will accelerate to 1.4 percent this year in response to the healthy automotive market, employment in this sector will fall by about 4.3 percent each year in 2001 and 2002.

The automotive industry, specifically, is expected to gain 2,000 jobs this year, but will then lose 11,000 jobs over the next two years, due to the slowing of vehicle sales, they say. The rest of the manufacturing industries combined are forecast to add 1,000 jobs this year, followed by a loss of 4,000 jobs through 2002.

Most of these jobs are concentrated in industries related to the motor vehicle industry, such as fabricated metals, apparel, chemicals, primary metals, and glass, as well as in printing and publishing, and furniture.

In the private non-manufacturing sector in Wayne County, employment should increase by 1.3 percent this year (about 6,000 jobs), but barely grow by just 1,000 jobs over the next two years—reflecting the weakness in manufacturing and the constraints imposed by labor shortage problems, the researchers say.

The largest job gains in non-manufacturing from last year to 2002 will come in air transportation (5,000 jobs); amusement and recreation, including casinos (5,000 jobs); and business services (4,000 jobs); while the biggest declines will be in health care services (5,000 jobs) and banking (3,000 jobs). Jobs in construction, retail trade and wholesale trade will remain fairly constant over the forecast horizon.

Fulton and Grimes say that the shortage of qualified workers has hampered job growth in the county for the past few years and will continue to do so over the next several years.

“Since the county’s unemployment rate cannot go much lower, employment growth will be constrained to growth in the labor force,” Grimes says. “The labor force can increase in only two ways—an increase in the labor force participation rate or an increase in the working-age population.

“The labor force participation rate is at record highs currently, and is not likely to increase significantly from there. In contrast, the labor force participation rate of older Americans has decreased sharply over the past 30 years, although there is some evidence, albeit very weak, that this trend has begun to reverse itself.”

The researchers say that tight labor market conditions will persist in Wayne County in the next three decades as the 16-to-64-year-old working-age population declines by 165,000 by 2030. This group currently comprises 65 percent of the county’s population, but, in 30 years, will make up only 58 percent of county residents.

In all, Fulton and Grimes say that the long-term economic viability of Wayne County depends on the promotion of policies that encourage productivity enhancements, especially through worker education and training; the upgrade of transportation networks and infrastructure to more effectively move available workers to available jobs; and increased attention to promoting comparative advantages of the county, such as its strength in air transportation and management and headquarters activity, as well as its dominance in the automotive sector.

“Wayne County has seen a significant turnaround in its economy from the difficult times during the 1970s and 1980s,” Fulton says. “By training its people, identifying and playing off of its strengths, and matching job opportunities with qualified job-seekers, Wayne County has the opportunity to expand on this momentum deep into the 21st century.”

The Wayne County forecast is generated from a regional economic model constructed specifically for this study by the U-M Institute of Labor and Industrial Relations and uses as inputs national economic indicators from the U-M Research Seminar in Quantitative Economics. It was constructed with the support of the Wayne County Department of Jobs & Economic Development.

Wayne CountyGeorge A. FultonDonald R. GrimesFederal ReserveResearch Seminar in Quantitative Economics